Tech Today: Twitter Tanks, Apple Builds iPhone Supply, Xiaomi Fizzles

Twitter Drops on Subscriber Speculation

Shares of Twitter (TWTR) are down $3.89, or over 8%, to $42.76, with no immediate news.

It’s possible the drop was prompted by a report Friday from The Washington Post’s Craig Timberg and Elizabeth Dwoskin stating that the company has been getting more aggressive in eliminating “fake” accounts from its platform, which could lead to “a rare decline in the number of monthly users in the second quarter,” write the authors, citing a single unnamed source.

"Twitter suspended more than 70 million accounts in May and June, and the pace has continued in July, according to the data,” the authors write.

Intel Still on Track

Shares of Intel (INTC) are down 35 cents, or 0.7%, to $51.02, after Israeli publication Calcalistupdated a story that had said Intel is at risk of losing sales of baseband parts to Apple (AAPL).

That headline by Yoav Stoler, originally appearing on July 5, said that Apple decided not to go with a part from Intel code-named “Sunny Peak,” which Stoler said would include the cellular baseband component and also the Bluetooth and WiFi circuitry, all crammed into one chip.

But Intel later that day indirectly refuted Stoler’s report in an email it sent to me. And today Stoler updated the article, saying that “a previous version of this article incorrectly stated that the Sunny Peak component also included 5G connectivity."

Apple Increasing iPhone Production

Speaking of Apple, BlueFin Research Partners analysts John Donovan and Steve Mullane write that Apple is increasing the number of iPhone units it is building heading into an expected fall update of the device.

Across three models, the “iPhone 9,” presumed to be an LCD-based phone, and the two models of OLED-based models, "iPhone 11 and 11 Plus,” Apple is commissioning production from its manufacturers of 91 million units in the September and December quarter, the authors write, which is "far larger than normal cycles,” they write.

Moreover, the LCD model, the 9, is experiencing some production delays the authors write. Once those problems are overcome, it is possible the company may produce another 10 million units on top of that 91 million, they opine.

Apple shares today are up $2, or 1%, to $189.97.

Netflix Valuation Peaking?

Shares of Netflix (NFLX) are up $4.86, or 1%, to $413.11, amidst some mixed views this morning.

Evercore ISI’s Vijay Jayant, who reiterates an “In Line” rating on Netflix, while raising his price target to $320 from $265, writes that he likes the “secular growth story,” and his numbers are higher than consensus, but “we are cautious on the reward/risk implied by current valuations."

“While we believe that Netflix is capable of executing on an accelerated timeline as compared to current investor expectations, we believe that our updated target price accounts for this possibility and thus we remain In Line rated at current levels,” writes Jayant.

Barclays’s Kannan Venkateshwar is a bit more bullish. He reiterates an Overweight rating, writing that the stock’s more than doubling this year—it’s up 117%—“has raised obvious valuation questions."

But Venkateshwar argues the “stock looks cheap even adjusted for growth,” at seven times 2020’s projected revenue.

There are, however, a couple of risks: "Netflix’s growth has in part been due to its low cost of capital […] Despite rising rates, there is no reason to believe at this point that Netflix’s access to capital markets will be constrained in any way. However, in a rising interest-rate environment, the cost of this capital may start creeping up.”

He also advises bearing in mind that the strength in the U.S. dollar can have an impact on the company’s revenue from overseas.

Groupon in Play?

Shares of Groupon (GPRN), the one-time “online deals” darling, is looking for a buyer, according to a report by Jason Del Rey of Recode from Saturday, citing two unnamed sources.

Chief Executive Rich Williams and other execs “have contacted several public companies in the past month to try to drum up interest in acquiring the Chicago-based company,” writes Del Rey.

The report has driven up Groupon stock by 24 cents, or 5.5%, to $4.60.

In response, D.A. Davidson’s Tom Forte this morning reiterates a Buy rating on Groupon stock, and an $8 price target, writing that he’s "not surprised by the possibility of management selling Groupon to generate incremental shareholder value” given "its North American business has never been in better shape and its international operations are well positioned, yet shares are trading well below $5.

"Therefore, if the public markets are not giving the company the value we believe it deserves, maybe the right strategic buyer would."

Cheers for Arista

Shares of Arista Networks (ANET) are up $5.14, or 2%, to $267.53, after Piper Jaffray’s James Fish raised his rating the shares to Overweight from Neutral, and raised his price target to $315 from $268, writing that he expects a “positive Q2” when the company next reports, on Aug. 2.

Fish details that his survey of resellers of networking equipment suggest the company can beat the Street’s $510 million revenue consensus.

Fish writes that he’s overcome most of his "3 big fears” that he had when he started the stock at Neutral back in November.

"Arista has had favorable rulings in recent litigation events, that should no longer delay deals and should drive better growth & FCF,” he writes.

"The investor community sentiment also has become more reasonable and we believe we have material room for upside to estimates.

"While valuation is not a perfect setup, we believe that it is more reasonable today as it trades at a 22% discount to efficient peers vs a 19% premium last year."

Xiaomi IPO Flops

Chinese smartphone startup Xiaomi (1810HK), which filed to go public back in early May, debuted on the Hong Kong stock exchange on Monday, Hong Kong time, and closed down 1% at 16.80 in Hong Kong dollars, after the offer price, $17, came in below the initial expectations for the pricing range.

The Wall Street Journal’s Dan Strumpf and Joanne Chiuwrite that there was skepticism among Asian investors regarding Xiaomi, which makes smartphones and other types of devices, positioning itself more broadly as “an Internet company."

The stock achieved a valuation of $54 billion with the $17 pricing, which the authors note was below some anticipations months ago that the company would have a $100 billion or greater valuation.

Sovereigns Bale on Equities

Interesting item by Reuters’s Claire Milhench from yesterday, citing an Invesco study, stating that more than a third of sovereign wealth funds plan to cut their equity exposure over the next three years because of, among other things, global trade tensions.

Equities make up 33% of sovereigns’ investments, the largest single asset class, Milhench notes, which means almost half of the investors are overweight equities. 40% say they’ll stick with equities.

Mind you the interviews for the report were conducted back in January and March.

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